Senate committee wants to know how the feds are handling Bitcoin, too

"We don’t have the best reputation here of being ahead of the curve," aide says.

In just one day, sources revealed, New York state regulators subpoenaed 22 Bitcoin-related companies, and a United States Senate committee wrote a letter (PDF) to the Department of Homeland Security asking for “policies, procedures, guidance, or advisories” pertaining to Bitcoin.

The letter from the Senate Homeland Security and Government Affairs Committee—dated Monday, August 12, 2013 but published on its website on Tuesday—cites an ongoing case in Texas involving Bitcoin Savings and Trust (BTCST). The BTCST was a virtual Bitcoin-based hedge fund that many suspected of being a scam. Earlier this month, a federal judge declared Bitcoin a “currency” and subject to relevant financial regulations.

The committee’s letter also asks for:

information related to any ongoing coordination of your agency with any other federal agencies or state and local governments related to the treatment of such currencies; and,

any plans or strategies regarding virtual currencies and information regarding any ongoing initiatives you have engaged in regarding virtual currencies and the name of the person most knowledgeable about any such plans, strategies, or initiatives.

The federal government has certainly accelerated its policies on Bitcoin in recent months.

“Talk to anyone in Silicon Valley or in New York—we don’t have the best reputation here of being ahead of the curve on a lot of these issues,” an anonymous committee aide told Politico.

In July, the Drug Enforcement Agency is believed to have seized its first cache of bitcoins in a criminal case. Earlier this year, a US federal agency, the Financial Crimes Enforcement Network (FinCEN), published new guidelines stipulating that Bitcoin-related businesses should be considered as Money Services Businesses under US law.

UPDATE 3:01pm CT: Patrick Murck, the attorney for the Bitcoin Foundation, wrote Ars to say that complying with the demands of the subpoena would costs tens of thousands of dollars:

"Legislators and regulators seem to understand that they must come to terms with a world in which Bitcoin and other digital currencies play a significant role in our economy. It seems to be a good time to have an open dialog about what regulation is feasible and what regulation is desirable. This is particularly so in the US, where New York's recent actions, issuing subpoena's to an entire industry, demonstrate the need for oversight, so it's good to see a Senate committee stepping up to provide it."

"[The subpoena] is extremely broad and onerous. Everyone I've spoken with who received the subpoena is amazed at the scope of the document request. While the [Department of Financial Services] says they want to have a conversation with the industry, their actions speak the language of aggressive litigation. It appears that the burden is on the industry to negotiate a narrowing of the scope of NY's request and shape a productive conversation."